17 Dec When a financial advisor won’t answer your questions
Q. My husband and I are retired and in our 60s. Our investments are handled by some larger firms. They send us statements filled with information – of which I have no clue how to translate, other than the bottom lines. I have tried asking our financial advisors within the firms we deal with. They respond to my questions with gibberish. I am college-educated, but cannot make heads or tails out of their responses. I want to know how to make some of my own investment choices – on a smaller scale – at least until I understand more. Our advisors clearly do not want me to do this, but they are also very circumspect when I ask them how much of our investment earnings are going into various fees. Where can I go to learn how to evaluate and invest? I would like to learn from someone who has no financial stake in managing our investments. I would prefer a classroom environment where I can ask questions, rather than being overwhelmed with information from various manuals. And yes, I am willing to pay for this education.
A. Wow. Your question leaves a very bad taste in our collective mouths. Not because you don’t understand money management, but because your advisors aren’t helping when you clearly ask.
And we’re not the only ones who find this distasteful
“What you are describing is financial services malpractice,” said Laura Mattia, a certified financial planner with Baron Financial Group in Fair Lawn. “You hire an adviser and let us be clear, whether you know it or not, you are paying them to work for you.”
She said you should not put up with gibberish or any form of intimidation. Your advisers should be able and willing to explain anything that you want. What is a stock? What is the S&P? Anything.
“Remember you should not be expected to know these things and part of their job should be to educate you. You pay them for that,” Mattia said. “Additionally, if they will not tell you exactly — and I mean exactly — what you are paying and what you are getting for that payment, they clearly are not working for you.”
It’s also great that you’re willing to become education. That’s one of the best forms of protection so you can be your own advocate and better protect yourself from abusive financial practices and scams which unfortunately still exist.
“And let’s not stop there. Even when an unscrupulous salesperson is not doing something illegal, often they still push products on people that they don’t need and can have damaging results,” Mattia said. “By becoming educated and by consistently asking good questions about products and practices, especially those that `seem too good to be true,’ you will be able to protect yourself, your family and your money.”
Mattia said she’s heard it argued that the average level of financial literacy in this country is so low that the average person will not be able to evaluate all the financial products in the marketplace and therefore they shouldn’t even try. She calls that ridiculous.
“The reality is that few people will understand everything about the plethora of financial products but they don’t have to,” she said. “You simply should understand the basics overall and you should have a general understanding about your investments and products that you hold. Generally individuals should stick to what they understand and if you don’t understand, don’t go there. Don’t be afraid to ask questions, over and over again.”
So where can you get that education?
You can begin by finding resources to educate yourself on basic investment management techniques such as allocation and diversification, said Kelly Trageser, a certified financial planner with Sea Clear Financial Planning in Sea Girt.
“Investment management is not rocket science,” she said. “If your financial advisors are making it seem like it is and answering your questions with gibberish and technical jargon something is not right.”
She said unfortunately, they may very well be doing it to keep you dazed and confused so you don’t question their strategy, or heaven forbid, their fees.
To understand basic investing language you have several options, Trageser said. First, you could visit your local library or book store and check out books and magazines located in the financial literacy section. Second, you could spend some time on the internet browsing basic investing techniques.
If you prefer a class, she recommends you call your local college to see if retirees are welcome to take investment classes. Or, she says, you can check out some online classes.
Your next option, which you can do in conjunction with your own education, is to find a financial planner who will explain it all to you. You can hire a fee-only financial advisor on an a hourly basis to sit with you and go over your statements, and answer whatever questions you have.
“I pride myself on educating clients so they feel empowered,” Trageser said. “There is no excuse for the financial advisors you are working with today to not be disclosing and explaining all fees and to not be taking the time to clearly explain how they are managing your money.”
So if you’re in the market for a new advisor, Trageser and Mattia both recommend you start with a fee-only advisor — one who doesn’t accept commissions — who is a certified financial planner. Both advisors recommend you check the web site of the National Association of Personal Financial Advisors, or NAPFA, for someone who is fee-only.
Trageser said certified financial planners hold the highest education designation in the financial planning industry.
“Often an advisor will have many abbreviations after their name. This can be misleading as the public will take these abbreviations to mean the advisor is highly educated, when in fact, those abbreviations just mean the advisor can sell insurance or investment products,” she said.
To find a financial advisor in your area with the CFP® designation, go to www.cfp.net. Or can find a listing of planners in your area through the Financial Planning Association of New Jersey, under “find a local planner,”
Next, you should make sure your advisor clearly spells out how they are paid. Those who take commissions aren’t necessarily recommending products so they can get a financial gain — though some do — so you may feel more comfortable with someone who only charges a fee for their time.
“Fee-only financial advisors are compensated solely with fees paid by their clients,” Trageser said. “They do not sell any products, receive any commissions, or collect any compensation from third parties.”
Some charge a flat fee, others an hourly fee, and yet others charge a percentage of assets under management. Either way, the fee should be clearly marked on invoices and disclosed when you first meet the advisor.
Mattia said another item you should consider is why you can actually trust to work for your benefit. That means the advisor has pledged to work as a “fiduciary,” or someone who puts your needs before their own fees or commissions.
“Believe it or not, this is not a legal requirement and many advisers such as stockbrokers who work for Wall Street or others that work for insurance companies cannot be a fiduciary to their client – they have a fiduciary obligation to their employer and their shareholders,” she said. “Of course the people in recent scandals, such as Madoff, were not legally working as a fiduciary to their clients.”
She recommends one of the first questions you ask an advisor is if they are willing to sign a fiduciary oath, putting your interests first above all else.
If not, hit the door, and fast.
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This story was first posted in December 2014.NJMoneyHelp.com presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.